Brosnan and Others v Sommerville

• Jurisdiction: Ireland
• Judge: MR. JUSTICE T.C. SMYTH
• Judgment Date: 03 October 2006
• Neutral Citation: [2006] IEHC 329
• Docket Number: 1287P/2005,[2005 No.
• Court: High Court
• Date: 03 October 2006

[2006] IEHC 329

THE HIGH COURT

DUBLIN

1287P/2005

BROSNAN & ORS v SOMMERVILLE

TIM BROSNAN, PAUL MAGOWAN AND PATRICK GLEESON

Plaintiff

Defendant

ANNE SOMMERVILLE

COMPANIES ACT 1990 S202

COMPANIES ACT 1963 S371

COMPANIES ACT 1990 S202(3)

COMPANIES ACT 1990 S202(4)

COMPANIES ACT 1990 S202(6)

COMPANIES ACT 1990 S202(10)

COMPANIES ACT 1963 S2

COMPANIES ACT 1963 S31

HEALY v HEALY HOMES LTD 1973 IR 309

COMPANIES ACT 1963 S147(3)

BURN v LONDON & SOUTH WALES COAL COMPANY & RISCA INVESTMENT COMPANY 1890 7 TLR 118

CURTIS FURNINSHING STORES LTD (IN LIQUIDATION) v FREEDMAN 1966 1 WLR 1219

COMPANIES ACT 1963 S371(1)

COMPANIES ACT 1963 S371(2)

Abstract:

Company law - Inspection of books and records - Access to bank accounts - Whether could compel defendant to sign bank enquiry letters - Resignation of defendant as company secretary and director of companies - Fiduciary duties - Companies Act 1963 s. 371 - Companies Act 1990, s. 202

The plaintiffs were the directors if a group of companies and were in dispute with a brother of the defendant. The

defendant resigned as company secretary and director in 2004, perceiving herself as caught in the cross fire between the

parties. The plaintiffs sought orders inter alia compelling the defendant to sign bank enquiry letters to allow the plaintiffs

obtain access to bank accounts and also sought to compel the defendant to deliver up certain books and records, pursuant

to s.202 of the Companies Act 1963.

Held by Smyth J. that as the defendant had resigned her position, no orders could be made against her for the purposes of

s. 371 of the Companies Act 1963. However, the defendant had a statutory duty to secure compliance with the requirements

of s. 202(6) of the Companies Act 1990 as she was still a company officer at the date of the first request in this respect. The

defendant had a fiduciary duty that could not have been evaded by reason of her resignation.

Reporter: E.F.

1 APPROVED JUDGEMENT OF MR. JUSTICE T.C. SMYTH DELIVERED ON TUESDAY, THE 3RD DAY OF OCTOBER 2006

2 JUDGMENT OF MR. JUSTICE T.C. SMYTH, DELIVERED ON TUESDAY, THE 3RD DAY OF OCTOBER 2006

3 By Notice of Motion dated 12th April 2005 the Plaintiffs seek orders that -

4 1) the Defendant be compelled to sign the bank enquiry letters furnished to her on behalf of the Plaintiffs for the purpose of allowing the Plaintiffs to obtain access to the bank accounts of

5 (a) Mars 2112 Group Ltd (the Group) and

6 (b) Mars 2112 Global Ltd ("Global") which is a wholly owned subsidiary of the Group pursuant to Section 202 of the Companies Act, 1990and/or Section 371 of the Companies Act, 1963.

7 2) The Defendant be compelled to deliver up to the Plaintiffs and/or the Plaintiffs" nominated Accountant/s all books and records (to include invoices, receipts and all documentation) in relation to the operation of the bank accounts held by the Bank of Ireland Global Markets (formerly Bank of Ireland Treasury and International Banking) ("the Bank") in respect of the Group and Global.

8 3) The Defendant be ordered and directed to authorise the bank to provide the Plaintiffs and/or the Accountants with whatever bank details and documents they require in respect of the bank accounts of the Group and Global pursuant to the provisions of the statutes aforesaid.

9 authorisations required by the Plaintiffs and/or the Accountants in respect of any other bank account(s) relating to the Group or Global.

The Facts

10 The Plaintiffs are directors of the Group of which Mr. Brosnan is Chairman of the Board of Directors. Global and a company called Mars 2112 Woodfield Corp. ("Woodfield") are both wholly owned subsidiaries of the Group. Mr. Gleeson is known as the "Investor Director" in Global. Mr. McGowan is known as the "Subscriber Director" in Global. Messrs. Gleeson and McGowan together respectively own approximately 63% of the shareholding of the Group.

11 All three Plaintiffs are in dispute with a brother of the Defendant, one Paschal Phelan who is a director of the Group, Global and Woodfield. He controls approximately 37% of the shares in the Group although it is through a nominee company Arkvale International Ltd. The Defendant, Mr. Phelan's sister was up until 31st August 2004 (when she resigned) Secretary to both the Group and Global prior to the institution of these proceedings.

12 A considerable amount of the material in the affidavits is taken up with the conduct of Mr. Phelan and the manner in which he is said to have constructed and managed a venture in Chicago in the United States of America. It went very seriously over budget and very substantial losses were incurred and apparently unaccounted for or not accounted for properly. The dispute of the Plaintiffs with Mr. Phelan is the subject of separate litigation (Record No. 2004/106968).

13 The accountant for the Plaintiff directors to both the Group and Global required certain books and documents to enable him to prepare a report for the directors, and difficulties arose in the attempt to obtain and inspect the relevant books and records of the companies. The Defendant perceived herself as "caught in the cross-fire" between the Plaintiffs and Mr. Phelan and further that their pernicious view of her was and is grounded on her relationship to Mr. Phelan and that she had been obstructive and acting in interests inimical to those of the Group and Global.

14 In the events she resigned both as company Secretary and director of both companies on 31st August 2004. Prior to that date she had been an authorised signatory in banks with which the companies had accounts. It would appear that both Mr. Phelan and herself, before the present directors became more actively involved, effectively ran the companies. However, notwithstanding her resignation both of the companies which are now effectively or in large measure the concern of the Plaintiffs appointed a new secretary. A Mr. Con Casey has been appointed as interim company Secretary. He is the accountant appointed by the Plaintiff directors to carry out the inspection they require. However, since his appointment there does not appear to have been any consequential advice to the banks with a view to changing banking mandates or the names on the accounts. However, notwithstanding her resignation, the Defendant at the request of the Plaintiff's solicitors signed two forms of authorisation to the Bank of Ireland, Baggot Street, Dublin enabling certain information to be given to the accountants to the companies.

15 No reason has been set out in the affidavit for the obvious omissions of notifying the banks of the change of company Secretary or changing the banking mandates, both or either of which could possibly have avoided the present application or why the requirements of alternative arrangements of the Plaintiffs and companies were not made well in advance of 31st August 2004. However, I think it fair to infer that the range of inquiries being made for and on behalf of the Plaintiffs was of a continuing nature over a period of time and at no stage was it indicated that the inquiries were at an end, nor was advance notice given of an intention to resign (by the Defendant).

16 A request was made dated 22nd December 2004 that the Defendant do sign two further forms of authorisation in relation to accounts held by the companies with the Bank of Ireland, Treasury and International Banking Division, Colville House, Talbot Street, Dublin. The stated purpose of the request was so as to allow the accountant mandated by the Plaintiff directors to access the financial records of the companies, as they are entitled to do pursuant to the Companies Acts. It is common case that the Defendant refused to sign the particular documents. It is essentially on this point that the parties joined issue.

17 The contentions of the Plaintiffs were as follows: -

18 1) The refusal of the Defendant to sign/the documents on the basis that she had resigned as Company Secretary and Director did not inhibit her from signing other like documents on 15th December 2004 (after she had resigned); therefore to advance her resignation as inhibiting her from signing the second set of documents is not a genuine reason to tender for her refusal.

19 2) That the bank would not provide any details or information to the Plaintiffs or the accountant (Mr. Con Casey) until such time as letters of authorisation are obtained from the authorised signatories to the account for which information is sought. In the circumstances where the Defendant is refusing to execute the documents she is effectively frustrating the Plaintiff's ability to exercise their statutory rights under the sections referred to in the Notice of Motion.

20 3) The Defendant is well aware that the board of the company cannot, pending an expert determination of the composition of the Board of Directors, take steps which would involve the substitution of another signatory for the Defendant in respect of those accounts. In the circumstances the failure, refusal and neglect by the Defendant to execute the documents, she must know has the effect of frustrating the ability of the Plaintiffs to exercise their statutory rights of access to information in respect of both companies. [Paragraphs 20 – 22 (inclusive) of Mr. Brosnan's grounding affidavit].

21 4) Mr. Phelan has signed documents, similar to those the Defendant refuses to sign, but without both signatures the probability is that the bank will not make the information available. In effect her refusal is a support to Mr. Phelan in his dispute with the Plaintiffs.

22 The contentions of the Defendant were as follows: - 1) The information being sought is for the purpose of enabling Mr. Con Casey of Casey McGrath & Associates, Chartered Accountants to finalise a report commissioned in 2003, not...